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Sun 13 May 2012 11:59 AM

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Dubai's property credit note market on the wane

Secondary market in credit notes boomed after Dubai canceled hundreds of projects

Dubai's property credit note market on the wane
Dubai's property credit note market on the wane

Demand for credit notes, given to investors of cancelled real estate projects in Dubai, has waned as discounts given to potential buyers has dropped, property experts have told Arabian Business.

Discounts offered on credit notes, which flooded the market after developers cancelled hundreds of projects in the emirate, have declined by as much as 40 percent, forcing many agents to give up sales altogether.

“So many projects were canceled and owners just wanted to get out so there was a big influx right at the beginning but there has been a massive drop in terms of what people are doing because the demand isn’t there,” said Stuart Raine from real estate consultant Cluttons.

“The last deal I did with them [credit notes] was probably about a year or so ago and we were doing a deal with about a 43 percent discount; now they are available at 20-25 percent discount,” he added.

Several Dubai-based real estate agencies told Arabian Business they no longer deal in credit notes. “The discounts are not as good [as they used to be],” one agent, who bought and sold more than 300 credit notes in 2009 and 2010 said.

“You are buying on power of attorney and no one knows what the developer is planning day to day so its risk for the buyer… with only 15 percent discount.” he added.

Property prices in Dubai soared after the city opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments. Between 2007 and mid-2008 prices in the emirate rallied almost 80 percent, according to Morgan Stanley.

The onset of the global financial crisis halted the property boom as speculators fled the market and mortgage lending dried up, forcing many developers to abandon projects.

Dubai has cancelled 217 property projects in a two-year review of the industry, the emirate’s Real Estate Regulatory Agency said in July.

Several Dubai-based developers including Nakheel and Emaar issued credit notes to investors on delayed and cancelled projects instead of offering them a cash refund. 

Nakheel settled AED6.6bn (US$1.8bn) of claims related to property sold in projects that were halted indefinitely, its chairman Ali Rashid Lootah said in April. The buyers have been offered alternative homes in projects nearing completion or credit notes that can be redeemed in five years.

The release of credit notes fueled a secondary market in Dubai with agents earning up to AED1m in commission in a year but demand has since dried up, said Raine. “The guys in the market were probably turning about AED1m a year in commissions…now they are probably making AED100,000.”

Current discounts on Nakheel credit notes listed on website Dubizzle are around17-15 percent. 

“The discount structure has really changed…we used to sell with a 60 percent discount but now it’s back to 20 percent,” said Sanjay Dhawan of Dubai-based HRE. “We were selling credit notes everyday [valued] at millions of dirhams, they were really big numbers but right now it’s not that big.”

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Meerza Baber Ali 8 years ago

Pl provide list of cancelled projects

Meerza Baber Ali 8 years ago

I have a studio in cancelled Rufi Royale Residency Project Of Rufi Developers at down town Jabal Ali. The Total Cost was AED 915,000 and I paid AED 183,000 (20%) some 5 years back. Rufi not paying money................ Can it be possible that I can get back my life time saving back in full and I may not suffer more. Can RERA intervene and press the developer to pay back my hard earned belonging................ Desparetly wating for the miracle to happen...........

Nakheel owner 8 years ago

Demain for credit notes will increase again when Nakheel demands a further payment for the 8000 properties it is delivering this year. The settlement process has been streamlined so it only takes 3 days. Power of Attorney is not necessary anymore and the transfer is zero risk - even a 5% discount is better than nothing after all.. Desperate sellers have already sold, owners who remain have more confidence that will receive a full refund or their project will eventually get built.

abbass 8 years ago

It would be nice if ARRA announces the list of canceled project in Ajman to make sure thousands of desperate investors get their money back from developers who lack the developing skills like Chapal and Stargiga.

Sajan Bhatia 8 years ago

Please provide the list of cancelled projects in Dubai.

I am waiting for refund of approx 800,000/ paid as booking amount for a half flooor in a Comercial Tower called Burj Al Faraa.The project has not go off the ground since 4 years.
The contractor is non responsive to my letters for refunds / meetings.
RERA too have washed their hands off such matters and just direct you to the courts.

Mr Khan 8 years ago

As someone who worked in Real Estate for over 5 years I never earned anywhere in the region of 1,000,000 AED even during the "Boom days". So I am unsure where this figure has been plucked from. Seems to me the agenda is to shift the blame on to greedy sales agents (who work on commission from the developer ) whereas the real problem is developers have refused to deliver what they promised and kept the money while RERA have simply turned a blind eye.

The article mentions 217 cancelled projects but neglected to mention a key fact that a list of these cancelled projects is unavailable to investors. I think the AB interview with RERA head Mr Ghalatia on Dec 7th 2010 sums it best and i quote "There is a limit to transparency" - only in Dubai......

Bongo 8 years ago

100% agree with your comment Mr Khan. RERA is the main road block to the solution. They are simply not doing their job

abbass 8 years ago

Well put.If they wanted to solve this problem,it would be solved overnight.Rera and Arra are not doing their jobs period.

Salema 8 years ago

You are absolutely right.

Credit notes should rise to 90% of their face value shortly due to all the projects that Nakheel will start delivering.